Brent crude steady above $121 as equities rally, dollar weakens

Brent crude held steady above $121 a barrel on Wednesday as a rebound in equities and a larger than expected draw on U.S. oil product stocks helped ease fears over eroding demand.

Investors dipped their toes back into stocks and other risk assets, partly helped by solid results from investment bank Goldman Sachs and healthcare company Johnson & Johnson ., a day after Standard & Poor's jolted markets by lowering its outlook for U.S. credit to negative from stable.

Last week we saw some disappointing results in tech shares like Google, but the Goldman earnings were better than expected and that resulted in a reversal in risk appetite, which is good for commodities, said Serene Lim, a commodities analyst with ANZ Bank in Singapore.

ICE Brent crude for June slipped 12 cents to $121.21 a barrel by 0123 GMT (9:23 p.m. EDT). U.S. crude was up 11 cents at $108.39 a barrel.

Treasury Secretary Timothy Geithner said there was no risk the United States would lose its AAA credit rating, providing further support to volatile markets.

The dollar index , measuring the greenback against a basket of currencies, extended its losses after solid euro zone economic data helped the euro rebound against the dollar.

A weaker dollar can lift oil prices by making dollar-denominated crude less expensive for consumers using other currencies and by drawing investment away from foreign exchange markets seeking better returns.

U.S. OIL DATA

U.S. crude oil stocks rose 667,000 barrels last week, the industry group American Petroleum Institute said in its weekly inventory report released late on Tuesday.

Gasoline stocks fell 1.8 million barrels and distillate stocks dropped 3.4 million barrels, falling unexpectedly, according to the API.

Ahead of the API report, a Reuters survey of analysts yielded a forecast for crude oil stocks to be up 1.1 million barrels. Gasoline stocks were seen down 1.5 million barrels and distillate stocks were forecast to be unchanged.

The API numbers were rather bullish, and set a good platform for the oil data out of the U.S. tonight to boost prices, said Lim.

Oil prices could come under pressure from lingering concerns over a possible Greek debt restructuring that could further strain the euro zone, while threats to Africa and Middle East oil supplies that helped lift oil to recent 32-month peaks continue to unnerve markets.

Spain will sell up to 3.5 billion euros in bonds on Wednesday in an auction that should give clues on whether the country can avoid the bailout contagion that engulfed the much smaller economies of Greece, Ireland and Portugal.

Tension escalated in the Middle East after Yemeni police opened fire on protesters in Sanaa and Taiz on Tuesday, killing at least three people, as protesters tried to escalate their campaign to end President Ali Abdullah Saleh's 32-year rule.

In Syria, forces loyal to Muammar Gaddafi renewed the bombardment of Misrata on Tuesday, causing several casualties, said an Amnesty International researcher in the besieged Libyan city.